What I am seeing in private markets in the corona economy

Given our line of work at Secfi, I live and breathe in the private markets as we work primarily with tech and other venture backed startups. I’ve had a lot of friends ask me what I’m seeing in the private markets right now and I figured I take this gorgeous Friday afternoon to write about some of the trends I’m seeing.

We have all seen the rollercoaster ride in the public markets with stocks closing this week down given the unemployment reports. What is not as evident is the effect on the private markets.

Historically, private markets have lagged behind public markets by months. There is usually a cycle effect in which private market investors lose investing appetite due to a recession resulting in less funding for startups resulting in less growth and revenue resulting in less startups being launched which of course results in less capital being allocated to the private markets. The typical recession cycle may take a few months to get through.

What makes this situation different is the immediate impact coronavirus is having. Stores and factories being closed down and employees being forced to stay home is having an immediate overnight impact on sales and revenue numbers resulting in immediate layoffs. The stimulus package may help keep some startups afloat, but the reality is that many of these startups will not be able to survive in the short-term without bailout money from investors or the government.

Of course, pricing on an emergency funding round is never going to be favorable for the company. And the fact that many of these startups don’t have runway for even 3 months is going to overall negatively impact and expose the industry. “Top-line growth at all cost” was already in jeopardy prior to the current situation, and covid will likely put the nail on the coffin on that trend.

Companies offering nontangible goods and services are likely still sitting pretty overall given everything. I have not seen much immediate impact on many companies including those in big data or most SaaS companies. They will undoubtedly be affected by a shrinking economy, but the impact will be much more on a lag in line with previous recessions than the immediate term.

There will be an impact on fintech depending on what line of business you are in. Lenders and challenger banks are in a difficult position given the low interest rates. Payment companies may see a hit with reduced spending overall. Again, the impact will likely be down the road if there is a recession.

There’ll be additional insights as the covid situation starts to unravel. Companies that we once thought were sitting pretty will unfortunately fall on the other side of the aisle due to a recession. There has been very little news of deals being closed with VCs pushing investments to save portfolio companies, but I expect that to come out shortly. And of course, in the short term there will be more layoffs and more bankruptcies.

I’ll write more about this as the corona situation unravels. Have a good weekend.